Finding a buyer for the sale of a business is a lot like dating. Your prospects and your ultimate happiness increases with the number of people you meet. Whether you cruise the bars in San Jose, or schmooze partners at a trade show in San Francisco, building interest in your company is a critical step in finding buyers.
One of the key tools used in building business acquisition interest is a set of documentation often referred to as a “book”. The book will describe the business, the industry, and the potential for growth. It may also include financial statements, projections, and risk factors.
The content of the book must be considered carefully. Financial projections should be accompanied by appropriate disclaimers, and competitive and other risks to the business post-sale should be outlined. If the sales transaction is in the high tens of millions of dollars, language stating that an acquisition could reduce competition or permit other forms of market dominance should be avoided.
The manner in which the book is distributed requires some care. First, because of the competitive sensitivity of the information, the book should only be provided under a non-disclosure agreement (or “NDA”) after the business approves its delivery to a particular recipient. Second, a recipient should be pre-cleared to make sure information can’t or won’t be used for competitive purposes. Third, a recipient should have some sort of preexisting relationship with the business or the person distributing the book or should be otherwise highly sophisticated in financial matters. Distributing the book in any type of public context, such as in a seminar or through online advertisements or print media, should be avoided without first consulting with an attorney familiar with public solicitations.
As part of, or in lieu of, a book, the business may need to make presentations describing the opportunity it presents. The guidelines for the content of a presentation are very similar to those for a book.
Throughout this process, the need for secrecy is critical. Competitors who are able to disclose the possible business sale will use it to deprive the selling business of product or service sales. For this reason, potential acquirers should be screened carefully and NDAs should be tailored to prevent the inappropriate use of sensitive information.
Employees that become aware of the sale may lose motivation, or start looking for alternate employment. To help prevent or mitigate this, knowledge of the transaction within the selling business should be kept to a very small number of upper level management personnel. Any presentations or discussions with potential acquirers should occur at a location removed from the seller’s operations.
Like any relationship, finding a buyer for a business requires sufficient time and attention to make sure the result is a successful closing, rather than a costly breakup.